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Cracked eggshell hit by hammer | AccountingWEB | Self assessment thresholds: If it ain’t broke, don’t fix it?
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Self assessment thresholds: If it ain’t broke, don’t fix it?

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The changes to the self assessment threshold, aimed at simplifying tax interactions, have raised concerns as cutting down tax return filers without robust HMRC systems may create unnecessary risks for taxpayers.

18th Dec 2023
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Tucked away in the small print of the Autumn Statement was an announcement that from the 2024/25 tax year, employees with PAYE income only will no longer have to file tax returns regardless of their income level. This builds on a previous change, effective from 2023/24, that employees with solely PAYE income only need to be in self assessment (SA) if they earn over £150,000.

At the time of the previous threshold change, the Association of Taxation Technicians (ATT) expressed concern about the risks of raising the SA threshold from £100,000 to £150,000. In a nutshell, those risks included errors surrounding the tapering of the personal allowance above £100,000 of income, and the potential for either overpayments or underpayments of tax if high-income taxpayers with ‘simple’ tax affairs don’t have to file SA returns.

From bad to worse?

Scrapping the SA requirement completely for employees with no other taxable income extends these risks to a wider population. But we also need to think about the implications of high interest rates and frozen or falling tax allowances.

Looking at the highest earning employees, those with income over this year’s £150,000 SA threshold may well have spare capital invested in bank accounts or stocks and shares. Taxpayers with income over £150,000 will not normally be entitled to a savings allowance so will have tax to pay on even £1 of savings interest earned outside an ISA.

From April 2024, the dividend allowance will be just £500, meaning non-ISA dividends over that amount will be taxable for all taxpayers.

Combined with scrapping the SA requirement for employees with ‘simple’ tax affairs, these factors present a real risk that taxpayers will inadvertently fail to declare a liability to HMRC, potentially incurring interest and penalties for failing to pay tax owed on investment returns if that omission is spotted at a later date.

What does HMRC advise?

HMRC’s online tool to check if you need to file a tax return advises anyone with over £10,000 of investment income to complete a tax return. Below that level, the advice is to “tell HMRC” about dividends in excess of the dividend allowance, or other untaxed income if it exceeds £1,000. Bank interest is not referred to specifically, as that data should be fed to HMRC by the banks.

HMRC should then adjust the individual’s tax code to collect any tax due on their investment income. Where this isn’t possible, for instance pensioners with only a state pension, a Simple Assessment would be sent to collect the tax due.

What’s the problem?

Each year, HMRC writes to a number of taxpayers informing them they no longer need to file tax returns, based on comparing their previous returns with the SA requirements for the upcoming tax return cycle.

Taxpayers, and especially the unrepresented, are likely to take these letters at face value – “oh good, I don’t need to file a tax return!” – and will therefore not spot instances when tax is actually payable if they fail to review their position.

This review should include working out their total investment income, but also remembering other considerations such as whether the High Income Child Benefit Charge might apply.

What’s HMRC’s solution?

Given its drive to digital services, it’s likely HMRC would rather taxpayers tell it about investment income using their Personal Tax Account (PTA) than by phone or post.

Taxpayers who aren’t comfortable doing this or checking the resulting PAYE coding adjustments, may need professional advice. But agents still can’t access the full range of services available via the PTA, and may struggle to maintain a commercially viable relationship with clients who are no longer in SA and only need occasional help.

Taxpayers contacting HMRC by phone, post or webchat are likely to experience delays and quality of service issues which readers will be only too familiar with. What’s more, pushing more taxpayers into contacting HMRC via these channels will place more strain on HMRC’s customer service teams. By comparison, the process of HMRC issuing and processing a SA return each year should be largely automated.

Is there a better option?

Some taxpayers like to file a tax return as a way of reviewing their tax position for the year. It’s a chance to take stock, consider everything in the round and claim any tax reliefs which might apply (on personal pension contributions and Gift Aid payments for instance). It’s a route recommended by many agents for that reason.

HMRC removing a taxpayer from SA should not prevent them from filing a tax return anyway, if they choose to do so. To avoid unnecessary complications in processing the return, we recommend anyone wanting to file a return voluntarily first contacts HMRC to ask for a return to be issued.

Frustratingly, where HMRC agrees to the request for a return this may become a repetitive exercise. It’s likely HMRC will remove that taxpayer from SA again if the return submitted does not show any circumstances obliging them to remain in the system.

Summary

The SA threshold changes were billed in the Autumn Statement as a way to “simplify the experience of interacting with the tax system for individuals”.

Whilst the ATT supports simplifying tax and reducing unnecessary burdens on taxpayers, we are concerned HMRC is going too far in cutting down the number of people filing tax returns.

Doing so before HMRC’s systems and guidance are properly capable of supporting individuals in remaining compliant creates unnecessary risks for taxpayers. It’s also likely to drive more correspondence with HMRC, placing greater demands on services than if affected taxpayers remained within the SA system. Ideally, we’d like to see taxpayers able to opt into the SA system, if that is what works best for them.

Replies (37)

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By richard thomas
18th Dec 2023 16:23

"HMRC removing a taxpayer from SA should not prevent them from filing a tax return anyway, if they choose to do so. To avoid unnecessary complications in processing the return, we recommend anyone wanting to file a return voluntarily first contacts HMRC to ask for a return to be issued."

It *doesn't* prevent them, because they have a right to require a notice to file - section 711 ITEPA - so long as they have any PAYE income for the tax year which is actually subject to PAYE. And there is more than 3.5 years from the end of the tax year to make the demand.

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Replying to richard thomas:
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By FactChecker
19th Dec 2023 00:38

I suspect the author was referring to what is frequently reported on here (although I've no direct experience of it) ... namely where HMRC write an unsolicited letter to taxpayer notifying them that they are being withdrawn from the need to file an SA return (effectively the inverse of a NTF) - and the taxpayer simply ignores that letter / downloads a paper tax return / completes it and submits it.
Because HMRC aren't 'expecting' it, apparently their system sometimes fails to process such a return?

Of course if, as you suggest, the taxpayer's response to the original letter is to request HMRC to issue an NTF then everything should be hunky-dory.
But not all taxpayers are aware of the process ... some still use photocopies of out-of-date returns!

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Replying to FactChecker:
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By richard thomas
19th Dec 2023 08:26

My comment, if aimed at anyone in particular, was aimed at the professionals on this forum who might not be aware that they don’t have to wheedle an NTF out of HMRC or their clients do a voluntary return.

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By FactChecker
18th Dec 2023 18:57

All (or at least mostly) valid points, but:
"Taxpayers who aren’t comfortable doing this (using their PTA) or checking the resulting PAYE coding adjustments, may need professional advice" is a tad blasé.

Plenty of taxpayers (almost certainly the majority of them) meet those criteria - but are otherwise in no need of professional advice.

Is it now HMRC policy that *everyone* should use software but only with professional assistance?

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By FactChecker
18th Dec 2023 19:01

BTW a little precision when discussing tax issues wouldn't go amiss.

".. so will have tax to pay on even £1 of savings interest earned outside an ISA."
Other tax-free savings vehicles are available, as no doubt the BBC would express it.

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By Homeworker
19th Dec 2023 11:57

Having experienced the consequences of having a pensioner client removed from the SA system, as she had only pensions and savings interest, I totally agree with David. Interest rates have shot up over the last year or so and so many more people will need to pay tax. Pensioners in particular struggle to deal with HMRC - most of my pensioner clients (and I have quite a few) are unwilling or unable to set PTAs and so turn to me for help.
The lady who was taken out of SA received P800s every time HMRC received an interest figure from one of her banks and as she had several different accounts that meant at least four calculations. Her tax code kept changing as a result and she was thoroughly confused about what she owed and when she would need to pay it.
After making several telephone calls to the ADL to try and sort the situation out, I agreed with the client that she should go back into SA so that she would have certainty over the tax due and we asked HMRC to remove the interest from her tax code, to stop the constant changes. I now charge her a nominal fee for preparing the return, which takes a lot less of my time than spending hours on the phone to her and HMRC.

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Replying to Homeworker:
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By rockallj
19th Dec 2023 12:20

Well exactly! And this issue of ever changing tax codes doesn’t just happen to pensioners. A tax return as a reflection of the year is more straight forward and easier for us all to understand. It is also easier for HMRC and us accountants.

For an organisation with diminishing resources HMRC does like to make life harder for itself.

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By Matrix
19th Dec 2023 20:26

A client received a bill today. I think it is a simple assessment. We haven’t received our copy yet. No UTR, we call each year with her dividends and the tax is usually collected through her tax code but HMRC has now sent a bill for 22-23 but no payment details.

Does anyone know how she pays the tax due?

Thanks

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Morph
By kevinringer
20th Dec 2023 09:45

HMRC have been repeatedly warned about the explosion in under-taxed taxpayer numbers, such as on the Agent Forum and the Professional Bodies. Yet HMRC don't have a realistic plan. HMRC has a very short collective memory. HMRC seems to have forgotten that last time interest rates were at the current level, interest was paid net of basic rate tax, so only higher rate taxpayers needed to report their income. At the time the PSA was set, a taxpayer would need £100k+ of savings to exceed it. Today a taxpayer only needs about £20k of savings to exceed it. Combined with the increases in income and freezing of allowances, an increasing number of taxpayers who were entitled to £1000 PSA when it was introduced will only be entitled to £500 PSA today. In addition, when the changes to the taxation of savings happened, there was a change to dividends. Dividends used to carry a tax credit that covered basic rate liability, today dividends do not. The reduction in Dividend Allowance to 10% of its original level will cause many more people to fall into tax. HMRC is removing them from SA for political reasons. We agents can't report the income via the PTA. So the solution for us is to file an SA return. If HMRC doesn't like that, HMRC will have to come up with something better than the telephone. Maybe the digital-by-default HMRC of 2023 want us to send a paper letter instead?

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By Twickers Call
20th Dec 2023 10:40

HMRC not reading or picking up the tax payers who ceased trade. we often ring HMRC to remove them from the SA system.
PAYE system should pick up all the higher earners (Over £150,000) and send a standard letter pointing out their responsibilities under the self assessment. Sending a letter is too much? Then incorporate it with payroll of such notification. Make it mandatory.

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By Mike Warburton
20th Dec 2023 11:01

David

Last week I ran an article I the Daily Telegraph online about self-assessment returns and the new thresholds. It triggered many comments from readers concerned about what to do, so I asked the HMRC press office the following question;

“What is the advice that you would like to give our readers who are concerned that they may have a tax liability because they have savings income over £1,000 a year but are not required to be is self-assessment when they test themselves with the HMRC on line tool.

1 Should they write or phone HMRC with their interest details.
2 Should they move into self-assessment or
3 Should they assume that HMRC are capturing all the information from banks correctly such that they will be paying the correct amount of tax and not be at risk of a penalty

You will see that a number of readers have questioned whether your data capture is working efficiently. Are you satisfied that this is working or are you experiencing problems ?”

I have not had a reply yet so I have sent a reminder.
My suspicion is that HMRC have a fundamental problem with data collection, but I can’t prove it

Mike

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Replying to Mike Warburton:
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By Jo Nokes
20th Dec 2023 11:21

Mike, do please let us know when you receive a reply!

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Replying to Jo Nokes:
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By Mike Warburton
20th Dec 2023 14:19

see my new post
Mike

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Replying to Jo Nokes:
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By Mike Warburton
20th Dec 2023 14:19

see my new post
Mike

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7om
By Tom 7000
20th Dec 2023 11:12

I think the line to the client is

It is no longer Mandatory for you to file a return, but if you dont you might get a huge surprise in 4 years time when they say you owe 20k plus interest....

Its your call but be careful, the computer systems at HMRC dont care and are not robust enough to spot any issues in a timely manner

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By Agutter Accounts
20th Dec 2023 11:20

The bottom line is with the continuing squeeze on staff numbers at HMRC, management is resorting to desperate measures to try and keep the show on the road.

Since the pandemic started we have all found I am sure it is taking longer to get any answer out of HMRC on any matter that cannot be solved simply by seeking the help and advice that is supposed to be on Gov.uk but is not.

Like everything else in this country the system is broken and no longer works as we once took as normal.

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By Mr J Andrews
20th Dec 2023 11:24

Yes David; SOME { higher rate } taxpayers like to file an annual Return as a way of reviewing their tax position for the year. But what about those countless numbers within this bracket , paying into personal pension plans and donating large charitable payments unaware,for one reason or another, of the extended basic rate band they are entitled to. And of course unwittingly hiking up the Exchequer's coffers.
HMRC benefit from useful Section 17 TMA 1970 information . Sadly the boot is on the other foot where it comes to such outgoings.
Perhaps even further tucked away in the Autumn Statement this announcement was considered a favourable risk element.

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By Jo Nokes
20th Dec 2023 11:25

It makes no sense whatsoever. I imagine that filing an SA and its processing at HMRC is entirely automatic, so no pressure on staff numbers at all. Whereas, dealing with non SA taxpayers is the opposite of that.

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Replying to Jo Nokes:
Morph
By kevinringer
20th Dec 2023 12:16

I think it's a political decision so the Government can boast how many taxpayers have been removed from SA as proof how much simpler the Government has made the tax system.

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By Ian McTernan CTA
20th Dec 2023 12:07

My clients in those brackets will all continue to file under SA, for the simple reasons that HMRC always get the tax code wrong and my clients always have either something to claim or something to be taxed...

This move is a huge backwards step by HMRC. And how many clients or non-clients actually use PTA or are even remotely interested in doing so?

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Morph
By kevinringer
20th Dec 2023 12:24

Here's a good example of where HMRC fails to make use of data:

Millions of taxpayers are paying pension contributions, employers process these using their payroll software, but HMRC doesn't require the data to be submitted through RTI, so HMRC doesn't know how much each taxpayer has been paid, which means millions of taxpayer who find themselves in the higher rate band or HICBC won't get their pension contributions taken into account unless each one of those millions of taxpayers contact HMRC individually.

HMRC's "plan" (or lack of it) is to let each one of those millions of taxpayers sort it out individually with HMRC. But the "digital by default" solution would be for HMRC to change the RTI data so that it includes the pension contributions. This won't place any additional burden on employers because their software already handles the pensions anyway. It only requires HMRC to change the RTI specs and the software suppliers to apply the change.

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Replying to kevinringer:
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By FactChecker
20th Dec 2023 12:44

Whilst I agree with all your other comments on this thread, I'm not sure that I follow this one.

The FPS in RTI already includes data items for:
- Value of employee pension contributions paid under “net pay arrangements” in pay period
- Value of employee pension contributions that are not paid under a net pay arrangement in pay period
- Value of employee pension contributions paid under “net pay arrangements” year to date
- Value of employee pension contributions that are not paid under a net pay arrangement year to date

[as well as of course many data items for receipts from pensions (annuities, lump sums, et al)].

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Replying to FactChecker:
Morph
By kevinringer
20th Dec 2023 12:54

Thanks FactChecker. So HMRC already receives the pension data? In which case, why doesn't HMRC act on it?

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Replying to kevinringer:
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By Not Anonymous
20th Dec 2023 20:48

kevinringer wrote:

Thanks FactChecker. So HMRC already receives the pension data? In which case, why doesn't HMRC act on it?

Well with the net pay contributions there is currently nothing for them to act on as the RTI submission will already reflect the reduced taxable income this results in.

This will be changing shortly though for some low earners when the new pension relief legislation comes into play.

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By twohaporth
20th Dec 2023 13:09

On past experience it is useless to expect the Dimbos who run HMRC to listen to common sense.
It doesn't take a genius to work out that reducing allowances and raising interest rates will bring a lot of people into income tax debts. So what is the obvious thing to do ? Reduce the threshold for SARs. What does HMRC do? Increase the threshold for SARs.
Add crass stupidity to useless digital programs and what will you get?
You've got it - a widening tax gap as they like to call it - should be called 'HMRC's incompetence gap'. I really do despair - there seem to be no brains at all in the digital HMRC.

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Replying to twohaporth:
Morph
By kevinringer
20th Dec 2023 13:27

twohaporth wrote:

'HMRC's incompetence gap'


Love it.
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Replying to kevinringer:
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By FactChecker
20th Dec 2023 13:40

Me too ... but it's a 'competence gap' (there's no gap in the incompetence within HMRC)!

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By Mike Warburton
20th Dec 2023 14:17

I have just received the response below from HMRC
I have to say that I remain unconvinced that their data collection system is operating fully
Mike

An HMRC spokesperson said:
“For the majority of customers, tax on savings interest is automatically collected using their tax code.
“We will contact those who are not employed, do not get a pension or do not complete a Self Assessment directly, should they need to pay tax on their savings interest.”
Background
• If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically. To decide your tax code, HMRC will estimate how much interest you’ll get in the current year by looking at how much you got the previous year.
• If you’re not employed, do not get a pension or do not complete Self Assessment, your bank or building society will tell HMRC how much interest you received at the end of the year. Should you need to pay tax, HMRC will contact you directly and let you know how to pay it.
• You need to register for Self Assessment if your income from savings and investments is over £10,000.
• More information can be found here: https://www.gov.uk/apply-tax-free-interest-on-savings
• People can also check their tax codes and Personal Allowance here: https://www.gov.uk/check-income-tax-current-year

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Replying to Mike Warburton:
Helen Thornley Profile picture
By Helen Thornley
20th Dec 2023 17:36

Hi Mike
That was the answer I got before I went on Moneybox, having had contradictory information from other parts of HMRC (see https://www.accountingweb.co.uk/tax/hmrc-policy/savers-ride-the-tax-tide...). I expect HMRC will need to change this next year for the reasons set out above.
Helen

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Replying to Helen Thornley:
Morph
By kevinringer
21st Dec 2023 09:28

I heard you on Moneybox. We accountants are trying to increase awareness of this problem amongst our clients. You PBs are trying to increase awareness of this problem amongst taxpayers generally. But HMRC are sticking their head in the sand. HMRC seem to believe that if they squeeze their eyes tight enough and block their ears, the problem will go away.

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Replying to Helen Thornley:
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By Mike Warburton
21st Dec 2023 17:37

Sorry to have missed you Helen
I was a regular contributor on Money Box for 25 years and always enjoyed it.
A great programme
Mike

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Replying to Mike Warburton:
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By FactChecker
20th Dec 2023 19:14

Have they encountered the concept of Self-Employed?
Are they aware that (if only through desperation) people have overlapping, multiple channels of income?
Do they realise that the majority of savings are no longer invested with banks/bldg socs (so interest is paid by other bodies)?
Also that most of these bodies (inc banks) have no knowledge of a customer's NINO (so 'matching' will be unreliable with common names or frequent changes of addresses or simply those getting married/divorced)?

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Replying to FactChecker:
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By FactChecker
20th Dec 2023 19:17

And ... beware anodyne looking 'comfort phrases' offered by HMRC - such as:
"Should you need to pay tax, HMRC will contact you directly and let you know how to pay it."

Presumably a reference to the dreaded 'other SA' (Simple Assessment) - where the word 'assessment' should tell you all you need to know about the inherent dangers for the unsuspecting taxpayer!

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Replying to Mike Warburton:
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By Kathryn15
11th Jan 2024 09:58

The Simple Assessment system definitely doesn't work. I have clients for whom the interest figure in the calculation issued by HMRC has been wrong because:-
(a) The whole amount of interest received on joint accounts had been included on both husband and wife's assessments;
(b) The calculations do not include interest from all sources, especially NS&I and some online only banks seem to be missing;
(c) The figure picked up by HMRC for one account was £11.97 when the actual interest received on that account was £1,197.14!
(d) Interest received on Unit Trust investments is not included because investment income is not currently reported directly to HMRC.
I have seen many cases of taxpayers who assume that, because they have received a calculation from HMRC, it must be correct. They don't realise that HMRC don't have access to all their income sources and so don't realise they need to check the calculations and let HMRC know of any investment income, Gift Aid payments and pension contributions. It's a shambles.

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By Jabba the Hut
20th Dec 2023 16:47

What's going to be fun is that now interest rates are semi-reasonable loads of low income people are going to be liable for tax on their interest, most of these are likely to be north of 65/70 - good luck getting them on PTA's!
The PTA's are crap any way, even as a professional I find them hard to navigate to help clients do even simple things!

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Pile of Stones
By Beach Accountancy
20th Dec 2023 17:57

You are looking at this the wrong way.

HMRC's remit is now to issue as many fines and penalties as possible - this is just another way of achieving it.

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Replying to Beach Accountancy:
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By Not Anonymous
20th Dec 2023 20:54

Beach Accountancy wrote:

You are looking at this the wrong way.

HMRC's remit is now to issue as many fines and penalties as possible - this is just another way of achieving it.

Outside of Self Assessment what fines and penalties do HMRC issue to the average Joe/Jane taxpayer?

From what I have seen they don't even impose late payment interest charges on Simple Assessment liabilities so taking people out of Self Assessment, whether it's sensible or not, is going to reduce the number of fines and penalties, not increase them.

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